-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F4OKZ1b/FpkxTGVoyUa+NumQTqJ37uQwE7QgJNq0gPFwt1oj555UydP9MBmbsY6Z cmjhQUzsczthFdIgWu1VrA== 0000950131-01-502865.txt : 20010814 0000950131-01-502865.hdr.sgml : 20010814 ACCESSION NUMBER: 0000950131-01-502865 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000825788 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 391606834 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17686 FILM NUMBER: 1705984 BUSINESS ADDRESS: STREET 1: 101 W 11TH STREET STE 1110 CITY: KANSAS CITY STATE: MO ZIP: 64105 BUSINESS PHONE: 6088292992 MAIL ADDRESS: STREET 1: 101 WEST 11TH ST STREET 2: STE 1110 CITY: KANSAS CITY STATE: MO ZIP: 64105 FORMER COMPANY: FORMER CONFORMED NAME: DIVALL INSURED INCOME FUND-2 LIMITED PARTNERSHIP DATE OF NAME CHANGE: 19880229 10-Q 1 d10q.txt FORM 10-Q FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30,2001 ---------------- OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ______________ Commission file number 0-17686 DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) WISCONSIN 39-1606834 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 101 W. 11th Street, Suite 1110, Kansas City, Missouri 64105 (Address of principal executive offices, including zip code) (816) 421-7444 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Interests Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ --- PART I - FINANCIAL INFORMATION Item 1. Financial Statements DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP BALANCE SHEETS June 30, 2001 and December 31, 2000 ----------------------------------- ASSETS
(Unaudited) June 30, December 31, 2001 2000 ----------- ----------- INVESTMENT PROPERTIES AND EQUIPMENT:(Note 3) Land $ 7,298,596 $ 7,298,596 Buildings 11,902,463 11,902,463 Equipment 669,778 669,778 Accumulated depreciation (5,867,180) (5,694,980) ----------- ----------- Net investment properties and equipment 14,003,657 14,175,857 ----------- ----------- OTHER ASSETS: Cash and cash equivalents 913,123 752,060 Cash held in Indemnification Trust (Note 8) 365,775 356,153 Property tax escrow 7,875 0 Rents and other receivables 80,747 530,379 Deferred rent receivable 109,464 105,684 Prepaid insurance 6,436 16,091 Deferred charges 317,834 263,407 Note receivable (Note 3) 117,750 0 ----------- ----------- Total other assets 1,919,004 2,023,774 ----------- ----------- Total assets $15,922,661 $16,199,631 =========== ===========
The accompanying notes are an integral part of these statements. 2 DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP BALANCE SHEETS June 30, 2001 and December 31, 2000 ----------------------------------- LIABILITIES AND PARTNERS' CAPITAL
(Unaudited) June 30, December 31, 2001 2000 ------------ ------------ LIABILITIES: Accounts payable and accrued expenses $ 85,005 $ 40,059 Property taxes payable 7,875 0 Due to current General Partner 2,002 2,667 Security deposits 124,850 117,850 Unearned rental income 42,065 85,407 ------------ ------------ Total liabilities 261,797 245,983 ------------ ------------ CONTINGENT LIABILITIES: (NOTE 7) PARTNERS' CAPITAL: (NOTES 1, 4 AND 9) Current General Partner - Cumulative net income 163,093 154,838 Cumulative cash distributions (67,308) (64,006) ------------ ------------ 95,785 90,832 ------------ ------------ Limited Partners (46,280.3 interests outstanding) Capital contributions, net of offering costs 39,358,468 39,358,468 Cumulative net income 22,512,108 21,694,845 Cumulative cash distributions (45,465,268) (44,350,268) Reallocation of former general partners' deficit capital (840,229) (840,229) ------------ ------------ 15,565,079 15,862,816 ------------ ------------ Total partners' capital 15,660,864 15,953,648 ------------ ------------ Total liabilities and partners' capital $ 15,922,661 $ 16,199,631 ============ ============
The accompanying notes are an integral part of these statements. DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP STATEMENTS OF INCOME (Unaudited) -----------
Three Months Ended Six Months Ended ------------------ ---------------- June 30, June 30, ------------- ------------- 2001 2000 2001 2000 -------- -------- ---------- ---------- REVENUES: Rental income (Note 5) $577,644 $595,930 $1,167,126 $1,162,743 Interest income 11,584 15,212 25,757 30,409 Lease termination fee (Note 3) 157,000 0 157,000 0 Recovery of amount previously written off 1,391 927 4,172 2,318 Other income 134 1,179 318 1,446 -------- -------- ---------- ---------- 747,753 613,248 1,354,373 1,196,916 -------- -------- ---------- ---------- EXPENSES: Partnership management fees (Note 6) 48,505 46,928 95,891 93,163 Insurance 6,827 4,404 9,655 8,779 General and administrative 25,408 40,888 46,743 62,146 Advisory Board fees and expenses 2,188 3,968 6,462 7,985 Write-off uncollectible receivables 7,561 6,810 15,561 6,810 Ground lease payments (NOTE 3) 18,951 26,389 35,803 57,761 Expenses incurred due to default by lessee 1,205 1,390 1,205 1,390 Professional services 38,476 36,007 130,086 67,671 Restoration fees (Note 6) 56 37 167 93 Depreciation 86,100 88,098 172,200 176,196 Amortization 11,947 2,757 15,082 6,085 -------- -------- ---------- ---------- 247,224 257,676 528,855 488,079 -------- -------- ---------- ---------- NET INCOME $500,529 $355,572 $ 825,518 $ 708,837 ======== ======== ========== ========== NET INCOME - CURRENT GENERAL PARTNER $ 5,005 $ 3,556 $ 8,255 $ 7,088 NET INCOME - LIMITED PARTNERS 495,524 352,016 817,263 701,749 -------- -------- ---------- ---------- $500,529 $355,572 $ 825,518 $ 708,837 ======== ======== ========== ========== NET INCOME PER LIMITED PARTNERSHIP INTEREST, based on 46,280.3 Interests outstanding $ 10.71 $ 7.61 $ 17.66 $ 15.16 ======== ======== ========== ==========
The accompanying notes are an integral part of these statements. 4 DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS (Unaudited) -----------
Six Months Ended June 30, -------------------------- 2001 2000 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 825,518 $ 708,837 Adjustments to reconcile net income to net cash from operating activities - Depreciation and amortization 187,282 182,281 Recovery of amounts previously written off (4,172) (2,318) Provision for uncollectible rents and receivables 15,561 6,810 Interest applied to Indemnification Trust account (9,622) (9,378) Lease termination fee (157,000) 0 (Increase)/Decrease in property tax escrow (7,875) 0 Decrease in rents and other receivables 434,071 439,783 Decrease in prepaids 9,655 8,526 (Increase)/Decrease in deferred rent receivable (3,780) 16,840 (Decrease) in due to current General Partner (665) (546) Increase in accounts payable and other accrued expenses 52,821 8,356 Increase in security deposits 7,000 0 (Decrease) in unearned rental income (43,342) (19,622) ----------- ----------- Net cash from operating activities 1,305,452 1,339,569 ----------- ----------- CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES: Note receivable 39,250 0 Payment of deferred leasing commissions (69,509) 0 Recoveries from former affiliates 4,172 2,318 ----------- ----------- Net cash (used in) from investing activities (26,087) 2,318 ----------- ----------- CASH FLOWS (USED IN) FINANCING ACTIVITIES: Cash distributions to Limited Partner (1,115,000) (1,560,000) Cash distributions to current General Partner (3,302) (2,835) ----------- ----------- Net cash (used in) financing activities (1,118,302) (1,562,835) ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 161,063 (220,948) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 752,060 1,387,306 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 913,123 $ 1,166,358 =========== ===========
The accompanying notes are an integral part of these statements. 5 DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS These unaudited interim financial statements should be read in conjunction with DiVall Insured Income Properties 2 Limited Partnership's (the "Partnership") 2000 annual audited financial statements within Form 10-K. These unaudited financial statements include all adjustments which are, in the opinion of management, necessary to present a fair statement of financial position as of June 30, 2001, and the results of operations for the three and six-month periods ended June 30, 2001, and 2000, and cash flows for the six- month periods ended June 30, 2001 and 2000. Results of operations for the periods are not necessarily indicative of the results to be expected for the full year. 1. ORGANIZATION AND BASIS OF ACCOUNTING: ------------------------------------- The Partnership was formed on November 18, 1987, pursuant to the Uniform Limited Partnership Act of the State of Wisconsin. The initial capital which was contributed during 1987, consisted of $300, representing aggregate capital contributions of $200 by the former general partners and $100 by the Initial Limited Partner. The minimum offering requirements were met and escrow subscription funds were released to the Partnership as of April 7, 1988. On January 23, 1989, the former general partners exercised their option to increase the offering from 25,000 interests to 50,000 interests and to extend the offering period to a date no later than August 22, 1989. On June 30, 1989, the general partners exercised their option to extend the offering period to a date no later than February 22, 1990. The offering closed on February 22, 1990, at which point 46,280.3 interests had been sold, resulting in total offering proceeds, net of underwriting compensation and other offering costs, of $39,358,468. The Partnership is currently engaged in the business of owning and operating its investment portfolio (the "Properties") of commercial real estate. The Properties are leased on a triple net basis to, and operated by, franchisers or franchisees of national, regional, and local retail chains under long-term leases. The lessees consist primarily of fast-food, family style, and casual/theme restaurants, but also include a video rental store and a child care center. At June 30, 2001, the Partnership owned 27 properties with specialty leasehold improvements in 12 of these properties. Rental revenue from investment properties is recognized on the straight-line basis over the life of the respective lease. Percentage rents are recorded when the tenant has reached the breakpoint stipulated in its lease. The Partnership considers its operations to be in only one segment and therefore no segment disclosure is made. Depreciation of the properties is provided on a straight-line basis over 31.5 years, which is the estimated useful lives of the buildings and improvements. Equipment is depreciated on a straight-line basis over the estimated useful lives of 5 to 7 years. Deferred charges consist of leasing commissions paid when properties are leased to tenants and the negotiated extension of a lease. Leasing commissions are capitalized and amortized over the life of the lease. Real estate taxes on the Partnership's investment properties are the responsibility of the tenant. However, when a tenant fails to make the required tax payments or when a property becomes vacant, the Partnership makes the appropriate payment to avoid possible foreclosure of the property. Taxes are accrued in the period in which the liability is incurred. Cash and cash equivalents include cash on deposit with financial institutions and highly liquid temporary investments with initial maturities of 90 days or less. 6 The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities (and disclosure of contingent assets and liabilities) at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Partnership follows Statement of Financial Accounting Standards No.121 ("SFAS 121"), Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed of, which requires that all long-lived assets be reviewed for impairment in value whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Partnership will be dissolved on November 30, 2010, or earlier upon the prior occurrence of any of the following events: (a) the disposition of all properties of the Partnership; (b) the written determination by the General Partner that the Partnership's assets may constitute "plan assets" for purposes of ERISA; (c) the agreement of Limited Partners owning a majority of the outstanding interests to dissolve the Partnership; or (d) the dissolution, bankruptcy, death, withdrawal, or incapacity of the last remaining General Partner, unless an additional General Partner is elected previously by a majority in interest of the Limited Partners. During the Second Quarter of 1998, the General Partner received the consent of the Limited Partners to liquidate the Partnership's assets and dissolve the Partnership. However, a buyer was not found for the Partnership's assets, and no current liquidation or dissolution plans are in effect. During the Second Quarter of 2001, another consent letter was sent to Limited Partners. The General Partner did not receive majority approval to sell the assets of the Partnership for purposes of liquidation. The Partnership will continue to operate as a going concern. No provision for Federal income taxes has been made, as any liability for such taxes would be that of the individual partners rather than the Partnership. At December 31, 2000, the tax basis of the Partnership's assets exceeded the amounts reported in the accompanying financial statements by approximately $8,318,000. 2. REGULATORY INVESTIGATION: ------------------------- A preliminary investigation during 1992 by the Office of Commissioner of Securities for the State of Wisconsin and the Securities and Exchange Commission (the "Investigation") revealed that during at least the four years ended December 31, 1992, the former general partners of the Partnership, Gary J. DiVall ("DiVall") and Paul E. Magnuson ("Magnuson") had transferred substantial cash assets of the Partnership and two affiliated publicly registered partnerships, DiVall Insured Income Fund Limited Partnership ("DiVall 1") (dissolved effective December 31, 1998) and DiVall Income Properties 3 Limited Partnership ("DiVall 3") (collectively the "Partnerships") to various other entities previously sponsored by or otherwise affiliated with DiVall and Magnuson. The unauthorized transfers were in violation of the respective Partnership Agreements and resulted, in part, from material weaknesses in the internal control system of the Partnerships. Subsequent to discovery, and in response to the regulatory inquiries, a third- party Permanent Manager, The Provo Group, Inc. ("TPG"), was appointed (effective February 8, 1993) to assume responsibility for daily operations and assets of the Partnerships as well as to develop and execute a plan of restoration for the Partnerships. Effective May 26, 1993, the Limited Partners, by written consent of a majority of interests, elected the Permanent Manager, TPG, as General Partner. TPG terminated the former general partners by accepting their tendered resignations. In 1993, the current General Partner estimated an aggregate recovery of $3 million for the Partnerships. At that time, an allowance was established against amounts due from former general partners and their affiliates reflecting the estimated $3 million receivable. This net receivable was allocated among the Partnerships based on each Partnership's pro rata share of the total misappropriation. Through June 30, 2001, $5,794,000 of recoveries have been received which exceeded the original estimate of $3 million. As a result, since 1996, the Partnership has recognized $1,120,000 as income, which represents its share of the excess recovery. No further significant recoveries are anticipated. 7 3. INVESTMENT PROPERTIES: ---------------------- As of June 30, 2001, the Partnership owned 25 fully constructed fast-food restaurants, a video store, and a preschool. The properties are comprised of the following: ten (10) Wendy's restaurants, three (3) Hardee's restaurants, two (2) Denny's restaurants, one (1) Fiesta Time restaurant, one (1) Mulberry Street Grill restaurant, one (1) Applebee's restaurant, one (1) Popeye's Famous Fried Chicken restaurant, one (1) Hooter's restaurant, one (1) Kentucky Fried Chicken restaurant, one (1) Hostettler's restaurant, one (1) Miami Subs restaurant, one (1) Village Inn restaurant, one (1) Omega Restaurant, one (1) Blockbuster Video store, and one (1) Sunrise Preschool. The 27 properties are located in a total of thirteen (13) states. The tenant operating a Denny's restaurant on Camelback Road in Phoenix, Arizona, did not formally exercise its option to extend its lease which expired on January 30, 1998, but continued to operate the restaurant and pay rent through December 31, 1999. During January 2000, the tenant notified Management that it had vacated the premises and ceased paying rent. Management entered into a termination agreement with the ground lessor of the property during the Third Quarter of 2000, which resulted in a one-time payment of $90,000 in exchange for a release of all future obligations. Possession of the property was returned to the ground lessor, resulting in a $153,000 loss in the Third Quarter of 2000. During March 2001, Hardee's Food Systems, Inc. notified Management of its intent to close its restaurants in South Milwaukee and Milwaukee, Wisconsin. Hardee's lease on the South Milwaukee property expires on November 30, 2001 and they will be required to continue making rent payments until the lease expiration date. This lease is not expected to be renewed, and therefore, Management will market the property for lease to a new tenant. The Hardee's lease on the Milwaukee property was not set to expire until 2009. In the Second Quarter of 2001, a lease termination agreement was executed and the tenant ceased the payment of rent as of April 30, 2001. Hardee's Food Systems will pay a lease termination fee of approximately two (2) years rent or $157,000. The payments are scheduled to be received in four (4) equal installments of $39,250. The first payment was received in May 2001, and the subsequent payments, which are reflected as Note receivable on the balance sheet, are scheduled to be received in August 2001, November 2001 and February 2002. During May 2001, Management negotiated the re-lease of the former Hardee's- Wisconsin property to Omega Restaurants, Inc. The ten (10) year lease is set to expire in 2011. The new tenant took possession of the property on June 1, 2001 and rent payments will commence in October 2001. Commissions of $50,000 and $9,000 were paid to an unaffiliated leasing agent and to an affiliate of the General Partner, respectively, upon the execution of the new lease. The Blockbuster Video Store lease expired on January 31, 2001. However, in the First Quarter of 2001, Management negotiated a five (5) year lease extension to January 31, 2006. A commission of $10,000 was paid to an unaffiliated leasing agent upon the negotiated extension of the lease. During the Fourth Quarter of 2000, Management negotiated the extension of the leases on the ten (10) Wendy's restaurants from original expirations ranging from 2008 to 2009, to new expirations dates of November 2016. A commission of $190,000 was paid to an affiliate of the General Partner upon the negotiated extension of the leases. During April 2001, Mulberry Street Grill Restaurant notified Management of its intent to close and vacate its restaurant in Phoenix, Arizona. The lease on the property expires in 2007 and they will be required to continue making rent payments until that time or until a lease termination agreement is entered into. Management is moving forward with all legal remedies. The Partnership owns two (2) restaurants, Kentucky Fried Chicken and Mulberry Street Grill restaurant, which are located on parcels of land where it has entered into long-term ground leases. One (1) of these leases is paid by the tenant, Kentucky Fried Chicken, and one (1) is paid by the Partnership. The lease paid by the Partnership is considered an operating lease and the lease payments are expensed in the periods to which they apply. The lease terms require aggregate minimum annual payments of approximately $72,000 and expire in the year 2008. Due to the Mulberry Street Grill property being vacant, Management is negotiating with the ground lessor to terminate 8 the ground lease, which would release the Partnership from its ground lease obligations and would return possession of the property to the ground lessor. The Partnership's net asset value of the vacant Mulberry Street Grill property is $160,000. Management has withheld payment of both the May and June lease obligations. The total cost of the investment properties and specialty leasehold improvements includes the original purchase price plus acquisition fees and other capitalized costs paid to an affiliate of the former general partners. According to the Partnership Agreement, the former general partners were to commit 80% of the original offering proceeds to investment in properties. Upon full investment of the net proceeds of the offering, approximately 75% of the original proceeds was invested in the Partnership's properties. The current General Partner receives a fee for managing the Partnership equal to 4% of gross receipts, with a maximum reimbursement for office rent and related office overhead of $25,000 between the three original affiliated Partnerships as provided in the Permanent Manager Agreement ("PMA"). Effective March 1, 2001, the minimum management fee and the maximum reimbursement for office rent and overhead increased by 3.4% representing the allowable annual Consumer Price Index adjustment per the PMA. For purposes of computing the 4% overall fee, gross receipts includes amounts recovered in connection with the misappropriation of assets by the former general partners and their affiliates. TPG has received fees from the Partnership totaling $55,296 to date on the amounts recovered, which has been offset against the 4% minimum fee. Several of the Partnership's property leases contain purchase option provisions with stated purchase prices in excess of the original cost of the properties. The current General Partner is not aware of any unfavorable purchase options in relation to original cost. 4. PARTNERSHIP AGREEMENT: ---------------------- The Partnership Agreement, prior to an amendment effective May 26, 1993, provided that, for financial reporting and income tax purposes, net profits or losses from operations were allocated 90% to the Limited Partners and 10% to the general partners. The Partnership Agreement also provided for quarterly cash distributions from Net Cash Receipts, as defined, within 60 days after the last day of the first full calendar quarter following the date of release of the subscription funds from escrow, and each calendar quarter thereafter, in which such funds were available for distribution with respect to such quarter. Such distributions were to be made 90% to Limited Partners and 10% to the former general partners, provided, however, that quarterly distributions were to be cumulative and were not to be made to the former general partners unless and until each Limited Partner had received a distribution from Net Cash Receipts in an amount equal to 10% per annum, cumulative simple return on his or her Adjusted Original Capital, as defined, from the Return Calculation Date, as defined. Net Proceeds, as originally defined, were to be distributed as follows: (a) to the Limited Partners, an amount equal to 100% of their Adjusted Original Capital; (b) then, to the Limited Partners, an amount necessary to provide each Limited Partner a Liquidation Preference equal to a 13.5% per annum, cumulative simple return on Adjusted Original Capital from the Return Calculation date including in the calculation of such return all prior distributions of Net Cash Receipts and any prior distributions of Net Proceeds under this clause; and (c) then, to Limited Partners, 90% and to the General Partners, 10%, of the remaining Net Proceeds available for distribution. On May 26, 1993, pursuant to the results of a solicitation of written consents from the Limited Partners, the Partnership Agreement was amended to replace the former general partners and amend various sections of the agreement. The former general partners were replaced as General Partner by The Provo Group, Inc., an Illinois corporation. Under the terms of the amendment, net profits or losses from operations are allocated 99% to the Limited Partners and 1% to the current General Partner. The amendment also provided for distributions from Net Cash Receipts to be made 99% to Limited Partners and 1% to the current General Partner provided, that quarterly distributions will be cumulative and will not be made to the current General Partner unless and until each Limited Partner has received a distribution from Net Cash Receipts in an amount equal to 10% per annum, cumulative simple return on his or her Adjusted Original Capital, as defined, from the Return Calculation Date, as defined, except to the extent needed by the General Partner to pay its federal and state income taxes on the income allocated 9 to them attributable to such year. Distributions paid to the General Partner are based on the estimated tax liability resulting from allocated income. Subsequent to the filing of the General Partner's income tax returns, a true-up with actual distributions is made. The provisions regarding distribution of Net Proceeds, as defined, were also amended to provide that Net Proceeds are to be distributed as follows: (a) to the Limited Partners, an amount equal to 100% of their Adjusted Original Capital; (b) then, to the Limited Partners, an amount necessary to provide each Limited Partner a Liquidation Preference equal to a 13.5% per annum, cumulative simple return on Adjusted Original Capital from the Return Calculation Date including in the calculation of such return on all prior distributions of Net Cash Receipts and any prior distributions of Net Proceeds under this clause, except to the extent needed by the General Partner to pay its federal and state income tax on the income allocated to its attributable to such year; and (c) then, to Limited Partners, 99%, and to the General Partner, 1%, of remaining Net Proceeds available for distribution. Additionally, per the amendment of the Partnership Agreement dated May 26, 1993, the total compensation paid to all persons for the sale of the investment properties shall be limited to a competitive real estate commission, not to exceed 6% of the contract price for the sale of the property. The General Partner may receive up to one-half of the competitive real estate commission, not to exceed 3%, provided that the General Partner provides a substantial amount of services in the sales effort. It is further provided that a portion of the amount of such fees payable to the General Partner is subordinated to its success in recovering the funds misappropriated by the former general partners. (See Note 7.) 5. LEASES: ------- Lease terms for the majority of the investment properties are 20 years from their inception. The leases generally provide for minimum rents and additional rents based upon percentages of gross sales in excess of specified breakpoints. The lessee is responsible for occupancy costs such as maintenance, insurance, real estate taxes, and utilities. Accordingly, these amounts are not reflected in the statements of income except in circumstances where, in management's opinion, the Partnership will be required to pay such costs to preserve its assets (i.e., payment of past-due real estate taxes). Management has determined that the leases are properly classified as operating leases; therefore, rental income is reported when earned and the cost of the property, excluding the cost of the land, is depreciated over its estimated useful life. Aggregate minimum lease payments to be received under the leases for the Partnership's properties are as follows: Year ending December 31, 2001 $ 2,088,895 2002 2,107,136 2003 2,062,990 2004 2,090,426 2005 2,105,050 Thereafter 16,001,502 ----------- $26,455,999 =========== Ten (10) of the properties are leased to Wensouth Orlando, a franchisee of Wendy's restaurants. Wensouth base rents accounted for 37% of total base rents for 2000. 10 6. TRANSACTIONS WITH CURRENT GENERAL PARTNER: ------------------------------------------ Amounts paid to the current General Partner for the six-month periods ended June 30, 2001 and 2000 are as follows. Incurred as of Incurred as of Current General Partner June 30, 2001 June 30, 2000 - ----------------------- -------------- -------------- Management fees $ 95,981 $ 93,163 Restoration fees 167 93 Overhead allowance 7,750 7,524 Reimbursement for out-of-pocket expenses 4,796 6,477 Leasing Commissions 8,644 0 Cash distribution 3,302 2,835 -------- -------- $120,640 $110,092 ======== ======== 7. CONTINGENT LIABILITIES: ----------------------- According to the Partnership Agreement, as amended, the current General Partner may receive a disposition fee not to exceed 3% of the contract price of the sale of investment properties. Fifty percent (50%) of all such disposition fees earned by the current General Partner is to be in escrow until the aggregate amount of recovery of the funds misappropriated from the Partnerships by the former general partners is greater than $4,500,000. Upon reaching such recovery level, full disposition fees will thereafter be payable and fifty percent (50%) of the previously escrowed amounts will be paid to the current General Partner. At such time as the recovery exceeds $6,000,000 in the aggregate, the remaining escrowed disposition fees shall be paid to the current General Partner. If such levels of recovery are not achieved, the current General Partner will contribute the amounts in escrow towards the recovery. In lieu of an escrow, 50% of all such disposition fees have been paid directly to the restoration account and then distributed among the three Partnerships. Fifty percent (50%) of the total amount paid to the recovery was refunded to the current General Partner during March 1996 after surpassing the recovery level of $4,500,000. The remaining amount allocated to the Partnership may be owed to the current General Partner if the $6,000,000 recovery level is met. As of June 30, 2001, the Partnership may owe the current General Partner $16,296, which is currently reflected as a recovery, if the $6,000,000 recovery level is achieved, which is considered unlikely. 8. PMA INDEMNIFICATION TRUST: -------------------------- The PMA provides that the Permanent Manager will be indemnified from any claims or expenses arising out of or relating to the Permanent Manager serving in such capacity or as substitute general partner, so long as such claims do not arise from fraudulent or criminal misconduct by the Permanent Manager. The PMA provides that the Partnership fund this indemnification obligation by establishing a reserve of up to $250,000 of Partnership assets which would not be subject to the claims of the Partnership's creditors. An Indemnification Trust ("Trust") serving such purposes has been established at United Missouri Bank, N.A. The Trust has been fully funded with Partnership assets as of June 30, 2001. Funds are invested in U.S. Treasury securities. In addition, $115,775 of earnings have been credited to the Trust as of June 30, 2001. The rights of the Permanent Manager to the Trust shall be terminated upon the earliest to occur 11 of the following events: (i) the written release by the Permanent Manager of any and all interest in the Trust; (ii) the expiration of the longest statute of limitations relating to a potential claim which might be brought against the Permanent Manager and which is subject to indemnification; or (iii) a determination by a court of competent jurisdiction that the Permanent Manager shall have no liability to any person with respect to a claim which is subject to indemnification under the PMA. At such time as the indemnity provisions expire or the full indemnity is paid, any funds remaining in the Trust will revert back to the general funds of the Partnership. 9. FORMER GENERAL PARTNERS' CAPITAL ACCOUNTS: ------------------------------------------ The capital account balance of the former general partners as of May 26, 1993, the date of their removal as general partners pursuant to the results of a solicitation of written consents from the Limited Partners, was a deficit of $840,229. At December 31, 1993, the former general partners' deficit capital account balance in the amount of $840,229 was reallocated to the Limited Partners. 10. SUBSEQUENT EVENTS: ------------------ On August 15, 2001, the Partnership will make distributions to the Limited Partners for the Second Quarter of 2001 of $565,000 amounting to approximately $12.21 per limited partnership interest. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources: - -------------------------------- Investment Properties - --------------------- The investment properties, including equipment held by the Partnership at June 30, 2001, were originally purchased at a price, including acquisition costs, of approximately $23,295,000. The tenant operating a Denny's restaurant on Camelback Road in Phoenix, Arizona, did not formally exercise its option to extend its lease which expired on January 30, 1998, but continued to operate the restaurant and pay rent through December 31, 1999. During January 2000, the tenant notified Management that it had vacated the premises and ceased paying rent. Management entered into a termination agreement with the ground lessor of the property during the Third Quarter of 2000, which resulted in a one-time payment of $90,000 in exchange for a release of all future obligations. Possession of the property was returned to the ground lessor, resulting in a $153,000 loss in the Third Quarter of 2000. During April 2001, Mulberry Street Grill Restaurant notified Management of its intent to close and vacate its restaurant in Phoenix, Arizona. The lease on the property expires in 2007 and they will be required to continue making rent payments until that time or until a lease termination agreement is entered into. Management is moving forward with all legal remedies. During March 2001, Hardee's Food Systems, Inc. notified Management of its intent to close its restaurants in South Milwaukee and Milwaukee, Wisconsin. Hardee's lease on the South Milwaukee property expires on November 30, 2001 and they will be required to continue making rent payments until the lease expiration date. This lease is not expected to be renewed, and therefore, Management will market the property for lease to a new tenant. The Hardee's lease on the Milwaukee property was not set to expire 12 until 2009. In the Second Quarter of 2001, a lease termination agreement was executed and the tenant ceased the payment of rent as of April 30, 2001. During May 2001, Management negotiated the re-lease of the former Hardee's- Wisconsin property to Omega Restaurants, Inc. The ten (10) year lease is set to expire in 2011. The new tenant took possession of the property on June 1, 2001 and rent payments will commence in October 2001. The Blockbuster Video Store lease expired on January 31, 2001. However, in the First Quarter of 2001, gement negotiated a five (5) year extension to January 31, 2006. During the Fourth Quarter of 2000, Management negotiated the extension of the leases on the ten (10) Wendy's restaurants from original expirations ranging from 2008 to 2009, to new expirations dates of November 2016. Other Assets - ------------ Cash and cash equivalents were approximately $913,000 at June 30, 2001, compared to $752,000 at December 31, 2000. The Partnership designated cash of $565,000 to fund the Second Quarter 2001 distributions to Limited Partners, $293,000 for the payment of accounts payable and accrued expenses, and the remainder represents reserves deemed necessary to allow the Partnership to operate normally. Cash generated through the operations of the Partnership's investment properties and sales of investment properties will provide the sources for future fund liquidity and Limited Partner distributions. The Partnership established an Indemnification Trust (the "Trust") during the Fourth Quarter of 1993, deposited $100,000 in the Trust during 1993 and completed funding of the Trust with $150,000 during 1994. The provision to establish the Trust was included in the PMA for the indemnification of TPG, in the absence of fraud or gross negligence, from any claims or liabilities that may arise from TPG acting as Permanent Manager. The Trust is owned by the Partnership. For additional information regarding the Trust refer to Note 8 to the financial statements. Property tax escrow at June 30, 2001, in the amount of $7,875, represented four (4) months of 2001 real estate taxes for the former Hardee's- Wisconsin property paid by Hardee's Food Systems, Inc. upon the lease termination agreement with Management. The Note receivable balance at June 30, 2001 was $117,750. In the Second Quarter of 2001, a lease termination agreement was executed with Hardee's Food Systems upon the closing of its restaurant in Milwaukee, Wisconsin. Hardee's Food Systems will pay a lease termination fee of approximately two (2) years rent or $157,000. The payments are scheduled to be received in four (4) equal installments of $39,250. The first payment was received in May 2001, and the subsequent payments are scheduled to be received in August 2001, November 2001 and February 2002. Deferred charges totaled approximately $318,000 and $263,000, net of amortization, at June 30, 2001 and December 31, 2000, respectively. Deferred charges represent leasing commissions paid when properties are leased or upon the negotiated extension of a lease. Leasing commissions are capitalized and amortized over the life of the lease. During the Second Quarter of 2001, commissions of $50,000 and $9,000 were paid to an unaffiliated leasing agent and to an affiliate of the General Partner, respectively, upon the execution of the new Omega Restaurant lease. During the First Quarter of 2001, a commission of $10,000 was paid to an unaffiliated leasing agent upon the negotiated extension of the lease with Blockbuster Video. During the Fourth Quarter of 2000, a commission of $190,000 was paid to an affiliate of the General Partner upon the negotiated extension of the leases on the ten (10) Wendy's restaurants. 13 Liabilities - ----------- Accounts payable and accrued expenses at June 30, 2001, in the amount of $93,000, primarily represent the accrual of auditing fees, leasing commissions and May and June ground lease rent. Property taxes payable at June 30, 2001, in the amount of $7,875, represented four (4) months of 2001 real estate taxes for the former Hardee's- Wisconsin property paid by Hardee's Food Systems, Inc. upon the lease termination agreement with Management. Due to the Current General Partner amounted to $2,002 at June 30, 2001, representing the General Partner's portion of the Second Quarter 2001 distribution. Partners' Capital - ----------------- Net income for the quarter was allocated between the General Partner and the Limited Partners, 1% and 99%, respectively, as provided in the Partnership Agreement and the Amendment to the Partnership Agreement, as discussed more fully in Note 4 of the financial statements. The former general partners' deficit capital account balance was reallocated to the Limited Partners at December 31, 1993. Refer to Note 9 to the financial statements for additional information regarding the reallocation. Cash distributions paid to the Limited Partners and to the General Partner during 2001 of $1,115,000 and $3,302, respectively, have also been in accordance with the amended Partnership Agreement. The Second Quarter 2001 distribution of $565,000 will be paid to the Limited Partners on August 15, 2001. Results of Operations: - ---------------------- The Partnership reported net income for the quarter ended June 30, 2001, in the amount of $501,000 compared to net income for the quarter ended June 30, 2000, of $356,000. For the six months ended June 30, 2001 and 2000, net income totaled $826,000 and $709,000, respectively. Revenues - -------- Total revenues were $748,000 and $613,000, for the quarters ended June 30, 2001 and 2000, respectively, and were $1,354,000 and $1,197,000 for the six months ended June 30, 2001 and 2000, respectively. The increase in revenues is primarily due to the $157,000 lease termination fee charged to Hardee's Food Systems, Inc. upon the lease termination of the Hardee's- Wisconsin lease in the Second Quarter of 2001. As of May 1, 2001 total revenues should approximate $2,068,000 annually, based on leases currently in place. Future revenues may decrease with tenant defaults and/or sales of Partnership properties. They may also increase with additional rents due from tenants, if those tenants experience sales levels which require the payment of additional rent to the Partnership. Expenses - -------- For the quarters ended June 30, 2001 and 2000, cash expenses amounted to approximately 20% and 27%, of total revenues, respectively. For the six months ended June 30, 2001 and 2000, cash expenses totaled 25% and 25%, respectively. Total expenses, including non-cash items, amounted to approximately 33% and 42%, of total revenues for the quarters ended June 30, 2001 and 2000, respectively, and totaled 39% 14 and 41% for the six months ended June 30, 2001 and 2000, respectively. The increase in total expenses is primarily due to appraisals being performed in the First Quarter of 2001 on all the Partnership properties. Inflation: - ---------- Inflation has a minimal effect on operating earnings and related cash flows from a portfolio of triple net leases. By their nature, such leases actually fix revenues and are not impacted by rising costs of maintenance, insurance, or real estate taxes. If inflation causes operating margins to deteriorate for lessees if expenses grow faster than revenues, then, inflation may well negatively impact the portfolio through tenant defaults. It would be misleading to associate inflation with asset appreciation for real estate, in general, and the Partnership's portfolio, specifically. Due to the "triple net" nature of the property leases, asset values generally move inversely with interest rates. ITEM 3. Quantitative and Qualitative Disclosure About Market Risk None. 15 PART II - OTHER INFORMATION ITEMS 1 - 5. Not Applicable. Item 6. Exhibits and Reports on Form 8-K (a) Listing of Exhibits: 99.0 Correspondence to the Limited Partners dated August 15, 2001, regarding the First Quarter 2001 distribution. (b) Reports on Form 8-K: The Registrant filed no reports on Form 8-K during the first quarter of fiscal year 2001. 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized. DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP By: The Provo Group, Inc., General Partner By: /s/ Bruce A. Provo -------------------------------------- Bruce A. Provo, President Date: August 13, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: The Provo Group, Inc., General Partner By: /s/ Bruce A. Provo --------------------------------------- Bruce A. Provo, President Date: August 13, 2001 By: /s/ Diane R. Conley --------------------------------------- Diane R. Conley Controller Date: August 13, 2001 17 EX-99 3 dex99.txt CORRESPONDENCE TO LIMITED PARTNERS DATED 8/15/2001 DiVall Insured Income Properties 2, L.P. QUARTERLY NEWS ================================================================================ A publication of The Provo Group, Inc. SECOND QUARTER 2001 Consent Results: DON'T SELL! The results of the consents have been tabulated. The majority of partners voted not to sell the Partnership. Twenty-six percent (26%) of investors voted to - --- sell, which was significantly below the majority required of fifty-one percent (51%). Therefore, we will continue to operate the Partnership. As noted in the previous Quarterly Newsletter, another consent will be sent out in May 2003, unless an earlier sale opportunity is deemed appropriate by the General Partner and the Advisory Board. I voted to sell. now what? So far this year, 3 tender offers have been made for DiVall 2. There is a lot of interest in this Partnership, and therefore, offers will likely continue to be made. One option is to wait for one of these offers. A second option is to contact our offices. We have a listing of secondary market brokers we can forward to you. Please note, when selling on the secondary market (or in the case of a tender offer), you will be selling at a discounted rate. A final option is to continue to hold your units. Last year the Partnership paid over a 9% return (based on a value of $500 per unit). Therefore, if you plan to reinvest the money after you sell your units, investigate the marketplace first! For example, if you sell your units for $425 and you own 10 units; you would receive $4,250. If you reinvest the proceeds in a five year corporate bond at a 6.5% yield, you would earn $266 per year. Last year ten units earned $460 in DiVall 2. To sell or not to sell was the investors decision. We feel this majority decision was appropriate given the uncertainty, in the marketplace, of alternative investments. For the most part, investors understand what has happened with this portfolio. However, we do still receive calls from investors who cannot understand why, how, or when the value went from $1,000 per unit to $500 per unit. Therefore, we would like to take the time to show how the portfolio has actually appreciated in value. Initial Investment............................................ $1,000 Offering Costs (See Note 1 below)............................. (150) Dollars misappropriated by original General Partner........... (80) ------ Remaining initial investment.................................. $ 770 Return of capital paid to date (See Note 2 below)............. (315) ------ Remaining initial investment.................................. $ 455 ====== The estimated net unit value as of December 31, 2000 was $505 per unit or $50 more than the actual remaining investment at cost. The Partnership has paid out a range of distributions from $1,079 to $881, the amount includes return of capital payments. The range depends on when an investor purchased their units. (The offering lasted from June 30, 1988 - February 1990). Note 1: When your investment was made, 15% was immediately taken off the top as fees per the offering circular. This was for marketing costs and brokers' commissions. These costs could only be recovered over time by "appreciation" in the assets. Note 2: This money is an actual return of your original investment. It occurs when a property is sold or principal payments are received on equipment leases. The return of capital paid to each investor varies according to when you received your first distribution payment. The range of return of capital payments is from $289 to $326. Page 2 DiVall 2 2 Q 01 Distribution Highlights . The Second Quarter distribution represents an approximate 9.5% annualized return from operations based on $23,800,000 (estimated net asset value as of 12/31/00). . $565,000 total amount distributed for the Second Quarter 2001 which is $40,000 higher than originally projected. . $12.21 per unit (approx.) for the Second Quarter 2001. . $1,079.00 to $881.00 range of distributions per unit from the first unit ----- sold to the last unit sold before the offering closed (February 1990), ---- respectively. (NOTE: Distributions are from both cash flow from operations ---- and "net" cash activity from financing and investing activities.) _________________________________________ Statements of Income and Cash Flow Highlights . There was a 37% increase in operating revenues. This is primarily due to the termination fees of $157,000 received from the Hardee's (Milwaukee, WI) property. Although only one installment has been recorded, accounting procedures require us to recognize the entire amount as income. For more information see Hardee's under Property Highlights. Additionally, Blockbuster renewed their lease, which was not expected. . There was a 4% increase in operating expenses. This is primarily due to higher than anticipated legal fees. Property Highlights Receivables: . Mulberry Street Grill (Formerly Mr. Munchies, Phoenix, AZ) was delinquent at June 30, 2001, in the amount of $32,263.30. We have moved forward with a lawsuit against this tenant. Additionally, we are holding a security deposit of $15,833.33 which will be applied to past due rent once the lawsuit is settled. . Village Inn (Grand Forks, ND) was delinquent at June 30, 2001, in the amount of $530. This amount represents late fees. . KFC ( Santa Fe, NM) was delinquent at June 30, 2001, in the amount of $5,000. One-half of the balance due was collected in the month of July and we fully expect to collect the remaining balance within the next several weeks. Page 3 DiVall 2 2 Q 01 HARDEE'S Terminates, But New Tenants Arrive!! As we reported to you last quarter, the Hardee's in Milwaukee, WI terminated their lease and vacated the property. The termination fee of $157,000 (or two years rent) will be paid in four installments and the first installment has already been received. We had a lot of interest in this property and have already signed a ten (10) year lease deal with Omega Restaurants. The concept will be Greek restaurant and it is the owner's third location in the area. The annual rent is $84,000 with 4% annual increases and rent will commence in October of this year. (Hardee's was paying an annual rent of $76,000 with no increases). The Hardee's in South Milwaukee, WI has also vacated the property. However, this lease expires in November of this year, and therefore, no termination fee was collected. We will continue to collect rent on this property through the lease expiration. We have had interest in this property from various restaurant operators. _________________________________________________________________ Contact Us: ------------------------------------------------------------ The Provo Group, Inc. 101 W. 11/th/ Street, Suite 1110 Kansas City, MO 64105 TOLL FREE 800-547-7686 OR (816) 421-7444 (816) 221-2130 FAX mevans@theprovogroup.com ------------------------------------------------------------ The Next distribution will be mailed on November 15, 2001.
---------------------------------------------------------------------------------------------------------------- DIVALL INSURED INCOME PROPERTIES 2 L.P. STATEMENTS OF INCOME AND CASH FLOW CHANGES FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2001 ------------------------------------------------------------------------------------------------------------------ PROJECTED ACTUAL VARIANCE ----------- ------------ ---------- 2nd 2nd QUARTER QUARTER BETTER OPERATING REVENUES 06/30/01 06/30/01 (WORSE) ----------- ------------ ------- Rental income $ 528,624 $ 577,644 $ 49,020 Interest income 14,600 11,584 (3,016) Lease Termination Fee 0 157,000 157,000 Other income 0 1,525 1,525 ----------- ------------ ---------- TOTAL OPERATING REVENUES $ 543,224 $ 747,753 $ 204,529 ----------- ------------ ---------- OPERATING EXPENSES Insurance $ 4,908 $ 6,827 $ (1,919) Management fees 47,910 48,505 (595) Overhead allowance 3,870 3,918 (48) Advisory Board 3,989 2,188 1,802 Administrative 27,400 26,491 909 Professional services 10,210 11,733 (1,523) Auditing 13,175 13,538 (363) Legal 6,000 8,206 (2,206) Defaulted tenants 300 1,205 (905) ----------- ------------ ---------- TOTAL OPERATING EXPENSES $ 117,762 $ 122,609 $ (4,847) ----------- ------------ ---------- GROUND RENT $ 16,650 $ 18,951 $ (2,301) ----------- ------------ ---------- INVESTIGATION AND RESTORATION EXPENSES $ 0 $ 56 $ (56) ----------- ------------ ---------- NON-OPERATING EXPENSES Uncollectible Receivable $ 0 $ 7,561 $ (7,561) Depreciation 86,100 86,100 (0) Amortization 2,787 11,947 (9,160) ----------- ------------ ---------- TOTAL NON-OPERATING EXPENSES $ 88,887 $ 105,608 $ (16,721) ----------- ------------ ---------- TOTAL EXPENSES $ 223,299 $ 247,224 $ (23,925) ----------- ------------ ---------- NET INCOME (LOSS) $ 319,925 $ 500,529 $ 180,604 OPERATING CASH RECONCILIATION: VARIANCE ---------- Depreciation and amortization 88,887 98,047 9,160 Recovery of amounts previously written off 0 (1,391) (1,391) (Increase) Decrease in current assets 585 22,813 22,228 Increase (Decrease) in current liabilities 11,267 (16,564) (27,831) (Increase) Decrease in cash reserved for payables (12,547) 21,561 34,108 Advance from/(to) current cash flows for future distributions 117,500 117,500 0 ----------- ------------ ----------- Net Cash Provided From Operating Activities $ 525,617 $ 742,495 $ 216,878 ----------- ------------ ----------- CASH FLOWS FROM (USED IN) INVESTING AND FINANCING ACTIVITIES Recoveries from former general partners 0 1,391 1,391 Notes Receivable- Hardee's Food Systems 0 (117,750) (117,750) Investment in Deferred Leasing Commissions 0 (59,069) (59,069) ----------- ------------- ----------- Net Cash Provided From Investing And Financing Activities $ 0 (175,429) $ (175,429) ----------- ------------- ----------- Total Cash Flow For Quarter $ 525,617 $ 567,067 $ 41,450 Cash Balance Beginning of Period 1,038,148 1,025,117 (13,031) Less 1st quarter distributions paid 5/01 (525,000) (540,000) (15,000) Change in cash reserved for payables or future distributions (104,953) (139,061) (34,108) ----------- ------------- ----------- Cash Balance End of Period $ 933,812 $ 913,123 $ (20,689) Cash reserved for 2nd quarter L.P. distributions (525,000) (565,000) (40,000) Cash reserved for payment of accrued expenses (135,435) (136,950) (1,515) Cash advanced from (reserved for) future distributions (156,250) (156,250) 0 ----------- ------------ ---------- Unrestricted Cash Balance End of Period $ 117,127 $ 54,923 $ (62,204) =========== ============ ========== ------------------------------------------------------------------------------------------------------------------ PROJECTED ACTUAL VARIANCE ---------------------------------------- * Quarterly Distribution $ 525,000 $ 565,000 $ 40,000 Mailing Date 08/15/01 (enclosed) - - ------------------------------------------------------------------------------------------------------------------------ * Refer to distribution letter for detail of quarterly distribution.
PROJECTIONS FOR DISCUSSION PURPOSES DIVALL INSURED INCOME PROPERTIES 2 LP 2001 PROPERTY SUMMARY AND RELATED ESTIMATED RECEIPTS
PORTFOLIO (Note 1) -------------------------- -------------------------------------- ---------------------------- REAL ESTATE EQUIPMENT TOTALS -------------------------- -------------------------------------- --------------------------- ANNUAL LEASE ANNUAL - ---------------------------------- BASE % EXPIRATION LEASE % * ANNUAL CONCEPT LOCATION COST RENT YIELD DATE COST RECEIPTS RETURN COST RECEIPTS RETURN - ---------------------------------- -------------------------- -------------------------------------- --------------------------- APPLEBEE'S COLUMBUS, OH 1,059,465 135,780 12.82% 84,500 0 0.00% 1,143,965 135,780 11.87% BLOCKBUSTER OGDEN, UT 646,425 100,670 15.57% 646,425 100,670 15.57% DENNY'S PHOENIX, AZ 972,726 65,000 6.68% 183,239 0 0.00% 1,155,965 65,000 5.62% DENNY'S PHOENIX, AZ 865,900 90,000 10.39% 221,237 0 0.00% 1,087,137 90,000 8.28% FIESTA TIME TWIN FALLS, ID 699,032 85,800 12.27% 190,000 0 0.00% 889,032 85,800 9.65% MULBERRY ST GRILL PHOENIX, AZ 500,000 61,200 12.24% 14,259 0 0.00% 514,259 61,200 11.90% HARDEE'S (5) S MILWAUKEE, WI 808,032 58,667 7.26% 808,032 58,667 7.26% HARDEE'S (5) HARTFORD, WI 686,563 64,000 9.32% 686,563 64,000 9.32% HARDEE'S (5) (6) MILWAUKEE, WI 1,010,045 25,333 2.51% (4) 260,000 0 0.00% 1,421,983 25,333 1.78% 151,938 0 0.00% HARDEE'S (5) FOND DU LAC, WI 849,767 88,000 10.36% (4) 290,469 0 0.00% 1,140,236 88,000 7.72% HARDEE'S (5) MILWAUKEE, WI 0 0 0.00% 780,000 0 0.00% 780,000 0 0.00% HOOTER'S R. HILLS, TX 1,246,719 95,000 7.62% 1,246,719 95,000 7.62% HOSTETTLER'S DES MOINES, IA 845,000 60,000 7.10% 52,813 0 0.00% 897,813 60,000 6.68% KFC SANTA FE, NM 451,230 60,000 13.30% 451,230 60,000 13.30% MIAMI SUBS PALM BEACH, FL 743,625 54,000 7.26% 743,625 54,000 7.26% - -------------------------------------------------------------- -------------------------------------- ----------------------------
Note 1: This property summary includes only current property and equipment held by the Partnership. Equipment lease receipts shown include a return of capital. 2: Rent is based on 12.5% of monthly sales. Rent projected for 2000 is based on 1999 sales levels. 3: The Partnership entered into a long-term ground lease in which the Partnership is responsible for payment of rent. 4: The lease was terminated and the equipment sold to Hardee's Food Systems in conjunction with their assumption of the Terratron leases in November 1996. 5: These leases were assumed by Hardee's Food Systems at a reduced rental rate from that stated in the original leases. 6: The lease with Hardee's Food Systems was terminated as of April 30, 2001. A new lease with Omega Restaurants was negotiated. Rent will commence October 2001. Page 1 of 2 PROJECTIONS FOR DISCUSSION PURPOSES DIVALL INSURED INCOME PROPERTIES 2 LP 2001 PROPERTY SUMMARY AND RELATED ESTIMATED RECEIPTS PORTFOLIO (Note 1)
---------------------------------------------------- REAL ESTATE ---------------------------------------------------- ANNUAL BASE % - ------------------------------------------------------------------------ CONCEPT LOCATION COST RENT YIELD - ------------------------------------------------------------------------ ---------------------------------------------------- OMEGA RESTAURANTS (6) MILWAUKEE, WI 1,010,045 21,000 2.08% POPEYE'S PARK FOREST, IL 580,938 77,280 13.30% SUNRISE PS PHOENIX, AZ 1,084,503 134,136 12.37% VILLAGE INN GRAND FORKS, ND 739,375 60,000 8.11% WENDY'S AIKEN, SC 633,750 90,480 14.28% WENDY'S CHARLESTION, SC 580,938 77,280 13.30% WENDY'S N. AUGUSTA, SC 660,156 87,780 13.30% WENDY'S AUGUSTA, GA 728,813 96,780 13.28% WENDY'S CHARLESTON, SC 596,781 76,920 12.89% WENDY'S AIKEN, SC 776,344 96,780 12.47% WENDY'S AUGUSTA, GA 649,594 86,160 13.26% WENDY'S CHARLESTON, SC 528,125 70,200 13.29% WENDY'S MT. PLEASANT, SC 580,938 77,280 13.30% WENDY'S MARTINEZ, GA 633,750 84,120 13.27% - ------------------------------------------------------------------------ --------------------------------------------------- - ------------------------------------------------------------------------ --------------------------------------------------- PORTFOLIO TOTALS (27 Properties) 21,168,579 2,179,646 10.30% - ------------------------------------------------------------------------ --------------------------------------------------- - ------------------------------------------------------------------------------------- EQUIPMENT - ------------------------------------------------------------------------------------- LEASE ANNUAL EXPIRATION LEASE % DATE COST RECEIPTS RETURN - ------------------------------------------------------------------------------------- 260,000 0 0.00% 79,219 0 0.00% 19,013 0 0.00% - ------------------------------------------------------------------------------------- --------------------------------------------------------- 2,586,687 0 0.00% --------------------------------------------------------- - ------------------------------------------------ TOTALS - ------------------------------------------------ TOTAL COST RECEIPTS RETURN - ------------------------------------------------ 1,270,045 21,000 1.65% 580,938 77,280 13.30% 1,182,735 134,136 11.34% 739,375 60,000 8.11% 633,750 90,480 14.28% 580,938 77,280 13.30% 660,156 87,780 13.30% 728,813 96,780 13.28% 596,781 76,920 12.89% 776,344 96,780 12.47% 649,594 86,160 13.26% 528,125 70,200 13.29% 580,938 77,280 13.30% 633,750 84,120 13.27% - ------------------------------------------------ - ------------------------------------------------ 23,755,266 2,179,647 9.18% - ------------------------------------------------
Note 1: This property summary includes only curent property and equipment held by the Partnership. Equipment lease receipts shown include a return of capital. Page 2 0f 2 -----END PRIVACY-ENHANCED MESSAGE-----